Fed could begin reviewing policy framework this year - Mester

Reuters Staff

3 Min Read

NEW YORK (Reuters) - The U.S. Federal Reserve could begin to reassess its current monetary policy approach later this year but the threshold for changing to an alternative would be high, Cleveland Federal Reserve President Loretta Mester said on Friday.

“It may be appropriate later this year to begin an assessment of our current monetary policy framework and alternatives,” Mester said in prepared remarks to a conference of central bankers and economists in New York.

She noted that such reviews take time and should be thorough. Mester has previously discussed possible changes to the U.S. central bank’s inflation-targeting regime in a similar speech in January but has not endorsed any one alternative.

Several Fed officials have recently suggested reviewing the central bank’s inflation model. The Fed’s preferred measure of inflation has fallen short of its 2 percent goal for almost six years, although recent data has shown signs of price pressures building amid a strong economy.

In her remarks, Mester said she was open-minded to the possibility of other frameworks, such as a higher inflation target, temporary price-level targeting, and price-level and nominal growth targeting, but also said costs of a change had to be considered.

“In my view, the success of the current framework, coupled with the lack of empirical evidence on alternatives, means that the bar should be high for changing to a new framework.”

Earlier on Friday, the Fed said it sees steady growth continuing and no serious risks on the horizon that might pause its planned pace of rate increases.

The Fed currently forecasts three rate rises this year and investors have all but priced in a nudge upwards in the benchmark lending rate at the central bank’s next meeting in March.

Mester has said she thinks policymakers should raise rates three to four times this year and next. She did not mention interest rate rises in Friday’s speech.

The Cleveland Fed chief has a vote on monetary policy this year under a rotating system.